Buy Hindustan Petroleum Corporation: target of Rs 260: Sharekhan

Sharekhan's research repor on Hindustan Petroleum Corporation

Q2FY21 PAT at Rs. 2,477 crore (up 2.4x y-o-y) substantially beat street estimates led by large inventory gains of Rs. 1,780 crore and beat in core GRM at $2.7/bbl. However, earnings missed our estimate due to lower marketing margins. HPCL outperformed peers with strong core GRM of $2.7/bbl vs. $1.5/bbl for BPCL and negative $1/bbl for IOCL; refinery utilization of 103% (vs. 79.5%/82% for IOCL/BPCL). Board approved share buyback not exceeding Rs. 2,500 crore at maximum buyback price of Rs. 250/share (34% premium to closing price of Rs. 187 on November 04, 2020) from open market. Buyback and healthy dividend yield of ~8% to support stock prices.

Outlook

HPCL would report highest earnings growth among OMCs (expect PAT CAGR of 38% over FY20-FY23E versus 20% for IOCL and BPCL). Moreover, valuation is attractive at 0.8x/5.1 FY23E PBV/PE. Hence, we recommend a Buy on HPCL with PT of Rs 260.

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